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'Expensive but no value' – No improvement in municipal audits, despite the R5.36bn consultant bill

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'Expensive but no value' – No improvement in municipal audits, despite the R5.36bn consultant bill

24th June 2022

By: News24Wire

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South African municipalities spent R5.3-billion on consultants in the past five years. A whopping 70% of them used these consultants every single year. From preparing financial statements to managing assets and tax services, the permanently employed financial managers and their teams couldn't complete those tasks without external help.

In the 2021/21 fiscal year alone, municipalities spent R1.26-billion on consultants. Of that, R431-million was spent on asset management. Around R300-million went to the preparation of financial statements. Tax services took up just over R300-million. They paid R54-million towards accounting services and the rest went to other "general services".

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But even with all those billions of rands going towards these tasks, 58% of financial statements submitted by municipalities to the Auditor General of SA (AGSA) in the past five years had "material misstatements" from work that consultants were paid to do. Even after corrections, 41% had modified opinions, including three municipalities with adverse opinions and 18 with disclaimed opinions.

In 2020/21 alone, the salary bill, plus the total cost of the consultant saw municipalities incur a total bill of R11.6-billion.

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"That is a very expensive solution where you're not getting a return on investment. The financial statements that are prepared are still not credible," said AGSA's head of audit at the provincial level, Mabatho Sedikela.

Audit improvements are no course for celebration

Even though clean audits in the municipalities have improved from 33 audits in 2016/17 to 41 in the 2020/21 year, Sedikela said that is not so much an improvement. This is because the 41 that got clean audits are mainly district municipalities. They are not so much responsible for service delivery.

There were also 100 municipalities whose audits looked like they had improved as they got unqualified audit opinions with findings, i.e., they did produce quality financial statements, but struggled to produce quality performance reports. But Sedikela said that too is no course for celebration.

"We are cautioning that celebration because only 62 of the oddities that gave us financial statements were credible, that's 25% of the municipalities. If we had arrived, on day one, audited and express an audit opinion, only 62 would have had better outcomes," she said.

AG to crackdown on shoddy delivery

Sedikela said the AGSA has seen consultants accepting assignments to assist local government, even when their previous work proved shoddy.

"We have seen several of such consultants going in doing work and not delivering services," she said

Sedikela told the chartered accountants attending the SAICA webinar that they should be guided by their profession's code of ethics. They must respect the requirements of the job they go in to perform.

She said the AGSA is not against the idea of using consultants where municipalities do not have enough capacity. After all, there was an average vacancy rate of 20% in the municipalities' finance units in the 2020/21 audit year. But they should do so in a responsible manner and there should be an assessment done prior to that to demonstrate the need for external help.

Up until now, the AGSA has adopted the stance of "cautioning" the offending consultants. But going forward, it is going to be tough on them.

"As we move into the next year when there is work done by the consultants and services have not been delivered, we are going to look to issuing material irregularities … We will be invoking our material irregularities so that those funds that have been used to pay the consultants and value has not been derived, goes back," said Sedikela.

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